SCHIP, a federal health insurance program for low-income children and pregnant women, has been making news lately (CQ ($) has a good article on it). Here's a quick rundown of what's been happening:

SCHIP is facing an urgent budget shortfall. Rep. David Obey (D, WI), Chairman of the House Appropriations Committee, announced yesterday that he will add about $750 million in SCHIP funding to a supplemental appropriations bill, whose primary purpose is war funding, that Congress will soon take up. Obey said that the temporary funding increase will be enough to stave off immediate cuts. However, the supplemental is expected to pass in early May- by which time some states may have run out of SCHIP funding. Georgia's SCHIP program, for example, is expected to hit a funding shortfall beginning in March.

In the long-term, SCHIP still faces budget imbalances, and does not (and never did) have enough money to offer coverage to all eligible children. The program comes up for reauthorization this year, and lawmakers are working on a redesign that would at least provide enough funding to cover the same number of children who are now in the program for the next five years.

Maintaining current service levels could cost between $12 to $15 billion- a relatively small amount of money in the context of budgets in the neighborhood of $3 trillion. In the FY08 budget proposal, the Bush administration asked for only an additional $5 billion, and has proposed shifting more costs to the states.

Other plans are circulating to expand coverage to all eligible participants- about 6 million more children. A full expansion is estimated to cost about $45 to $60 billion over five years. And since SCHIP is subject to PAYGO, the rule that requires deficit-neutral mandatory spending, all that money would have to be offset with new revenues or spending cuts. Sen. Gordon Smith (R-OR) has called for a higher federal cigarrette tax to pay for an SCHIP expansion- what may be the first time a Republican has sincerely suggested raising taxes in recent memory.

The fiscal gap is an awful way to measure and think about the budget's long-term fiscal imbalance.

I don't know why, but GAO likes it. They gave a rundown of what the fiscal gap is in a report released on Friday.

The fiscal gap is the amount of spending reduction or tax increases needed to keep debt as a share of gross domestic product (GDP) at or below today's ratio. Another way to say this is that the fiscal gap is the amount of change needed to prevent the kind of debt explosion implicit in figure 3.

Is that clear? Essentially, it's the money that GAO thinks we'll have to pony up to fulfill the federal government's obligations in current law.

GAO then goes on to say how much the fiscal gap is.

For GAO's "baseline extended simulation, closing the fiscal gap would require cuts or tax increases equal to 3.6 percent of the entire economy each year over the next 75 years, or a total of $26 trillion in present value terms.

That seems scary- $26 trillion is a lot of money that we'll essentially be getting nothing for. I mean, it's only to maintain current levels of services.

But there's one key and unmentioned technical objection: it assumes that we can't make government more efficient, that there's no way to get a bigger bang for our buck.

Pretty pessimistic, isn't it? Especially when the rest of the industrialized world gets its health care much more efficiently than we do, and when the main cause of the fiscal gap is rising health care prices.

For the life of me I can't figure out why this simple fact is excluded from the report. Are these scare-tactics a cynical attempt to cut government programs unnecessarily? Probably not. I think it's more that they just don't care to frame budget issues in anything but basic terms (spending must go up, revenues must go down, etc.), but it does make you wonder.

Glenn Hubbard, former head of the President's Counicl of Economic Advisors, said some ridiculous things on NPR's marketplace yesterday about long-term fiscal problems and the President's budget. Among the many opinions passed as facts, this one merits the most attention:

The president's budget poses a challenging question: Can we restore fiscal discipline without damaging economic growth with higher taxes?...The answer is yes.

Glenn's right. Yes, of course, we could- but that's because higher taxes (i.e. if we don't renew the Bush tax cuts) won't damage the economy in the long run! Even the economists at the Bush Treasury Department agree!

Hubbard also peddles the fiction that higher taxes -categorically- slow down growth. But what you tax is more important than how much you tax. European economies, for example, have had high growth rates and high taxes- they just make sure that they tax people the right way (See Jason Furman's testimony to the Senate Budget Committee, Page 9).

And finally, Hubbard drops the standard conservative line about long-term budget issues: it's a spending problem.

It's time for an honest fiscal conversation. The challenge is spending — and entitlement spending in particular.

But it is not a challenge if higher spending, financed by higher taxes, doesn't damage the economy. Higher spending is only a problem when it's on the wrong thing, or when it's financed the wrong way- i.e. by growth-reducing taxes or excessive deficit spending. The challenge is to figure out what to buy, and how to pay for it, based on our priorities and sound economics.

Glenn Hubbard disagrees. He thinks there's something inherently wrong with government spending. That's his opinion, and it's wrong.

A comment on testimony given to the Senate Budget Committee by Jason Furman, the leader of the center-left Hamilton Project and a scholar at the CBPP. The testimony concerns the "fiscal gap," the hot new phrase for what's typically called the long-term structural imbalance in the federal budget. His testimony is interesting and largely constructive.

But it's more notable for its demonstration of budget wonkery's biggest blind spot: health care economics.

Furman says rising health care costs are primarily responsible for the "fiscal gap." Yet all he says on the overall issue is this:

Unlike Social Security reform, there is no place to find readily quantifiable menus of options for health reform. The choices facing individuals, companies, and the government are not nearly as simple or well understood.

That's it? On the most important problem?

And it may be that the options for health care reform are more complex and less understood. But they are sufficiently understood. There's McKinsey & Company's landmark study on why our health care system is so overpriced (though in fairness I think it was released after Furman gave his testimony). There's a fascinating study of the Veteran's Administration's lean, effective health care system. There's all the work that Gerard Anderson has done on cross-national comparisons.

And there's the fact that the rest of the industrialized world knows how to contain health care costs while providing quality care.

The problem isn't that the issue isn't understood; it's that budget wonks don't care to understand it. If we want to close the "fiscal gap," we should figure out how to fix the health care system.

OMB Watch is pleased to annouce we have just released a new version of FedSpending.org with updated data, new features, and improved navigation. The new site is now live - see it yourself at www.fedspending.org.

OMB Watch issued a press release that describes the updates and improvments made to the site, and you can learn and see more about FedSpending v2.0 in the About This Site section, or by exploring the site yourself.

We welcome your feedback, comments, and questions about the new website, so please go to the Contact section of FedSpending.org and send us your thoughts.

OMB Watch will be releasing an updated version of our popular website FedSpending.org later today. FedSpending.org allows users to search and download extensive information about government spending going back to FY 2000, from contracts to grants, loans, insurance payments, and direct spending.

Below are some preview screenshots of the new look and features of the website. The new site will go live later this afternoon. Be sure to check it out and explore the new features.

New FedSpending.org Homepage with Features


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Added Summary Outputs with Trend Chart


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McKinsey, a nonpartisan consulting company, has answered my prayers and put out a comprehensive report on our overpriced, waste-ridden health care system. They even estimate tremendous savings from a national health care system. Steven Pearlstein makes the key point (emph. mine):

Proponents of a government-run "single-payer" system will certainly home in on the $84 billion a year that McKinsey found that Americans spend to administer the private sector portion of its health system -- a cost that national health plans largely avoid. But as long as Americans continue to reject a government-run health system, a private system will require something close to the $30 billion a year in after-tax profits earned by health insurance companies. What may not be necessary, McKinsey suggests, is the $32 billion that the industry spends each year on marketing and figuring out the premium for each individual or group customer in each state. Insurance-market reform could eliminate much of that expense.

Of course, any effort to reduce these excess costs faces determined opposition from well-financed lobbies, which is why many reformers prefer to focus on the goal of extending coverage to the 47 million Americans who don't have health insurance. But doing the one without the other, the McKinsey researchers warn, would be economic folly. Offering universal coverage without reining in costs would add another $77 billion each year in unnecessary and unproductive health spending.

You read right: a single-payer insurance system could save the country $84 billion a year.

But Pearlstein's other example -that universal health insurance could add more waste to the system- shows that insurance is just one piece of the puzzle. In total, the report found that we overpay by $477 billion each year- or $1,645 per person. We overpay doctors, nurses, and other professionals. We pay too much for prescription drugs. Everyone in the health care industry makes tremendous profits. And we have to deal with vast inefficiencies in health care operations.

That's all money we could save if the government responds.

For more commentary, see Tapped and Gooznews.

To follow up on Craig's post, I wanted to comment on Robert Samuelson's contempt for the American public. From his column:

We could consider all of federal spending and not just small bits of it. But most Americans don't want to admit that they are current or prospective welfare recipients. They prefer to think that they automatically deserve whatever they've been promised simply because the promises were made. Americans do not want to pose the basic questions, and their political leaders mirror that reluctance. This makes the welfare state immovable and the budget situation intractable.

Ah yes- the public thinks that the the government should make good on its promises. How absurd!

Samuelson here reminded me of one of the reasons we have entitlement programs: they are designed to ensure that the government keeps its promise to its citizens. When we pay into Social Security and Medicare, we want assurances that we'll get something in return. And entitlements like Food Stamps and Medicaid are promises that we won't slip below a minimum living standard (however low that might be nowadays).

Samuelson doesn't like it that entitlement programs are hard to change and reduce Congress's power over the annual federal budget. But, somewhat paradoxically, entitlement programs are set up to give the public more power by ensuring that the government doesn't break its promises. Why does Samuelson find this way of distributing power so offensive?

Robert Samuelson's column in the Washington Post this morning is a broadside against entitlement spending. You see, Samuelson believes that Congress will never balance the budget because so many Americans receive welfare (read: Social Security, Medicare, Medicade) that cutting such programs is politically impossible. And because raising taxes is also politically impossible, eliminating the federal budget deficit is impossible.

Annual budget debates are sterile -- long on rhetoric, short on action -- because each side blames the other for a situation that neither chooses to change. To cut spending significantly, conservatives would have to go after popular welfare programs, including Social Security and Medicare. To raise taxes significantly, liberals would have to go after the upper middle class, a constituency they covet (two-thirds of all federal taxes come from the richest fifth). Deficits persist, because neither side risks its popularity, and, indeed, both sides pursue popularity with new spending programs and tax breaks.

I know 7 years is a long time, but has Samuelson already forgotten about the budget surpluses in 1999 and 2000?

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Mr. Biggs has championed Social Security privatization in the past, and he continues to think it's a good idea today. It's a bad idea to give the number-two position at the Social Security Administration to someone who still supports that failed proposal. The American people took privatization off the table in the last Social Security debate. They saw that privatization would hurt Social Security's solvency, add $5 trillion to the federal debt, and expose Social Security benefits to market risk for the first time ever, and said no. It's time to move on to a real discussion about the long-term finances of Social Security and the Federal budget.

Biggs is currently the Assistant Director of the Project on Social Security Choice at the Cato Institute, a well-funded and vocal advocate for privitization of Social Security. This is a solid decision by Sen. Baucus.

Senate Budget Committee chair Kent Conrad (D-ND) and OMB Direct Robert Portman outdid each other at yesterday's Committee hearing. They lavishly praised each other's sincerity and good-faith bipartisan commitment to restoring the nation's fiscal imbalances by guaranteeing long-term entitlement program solvency, taking pains and risks to be sure to leave everything on the table, sharing a good-natured chuckle at the off-message public comments of a naughty Vice President who tried take some minor taxware of the table in broad daylight.

The lyrics to their Kumbaya cooing were as follows:

Conrad: Let's go to where we might agree because there are places you and I agree. The place we agree is our long-term prognosis on the need to face up to the fiscal imbalances. You have said everything is on the table. What do you mean by that?

Portman: First of all, I agree with you. I think it is incredibly important we as public officials on both sides of Pennsylvania Avenue and both sides of the aisle acknowledge the problem and I commended you for that... [T]here should be no preconditions, meaning that everything should be on the table... [T]his is the biggest fiscal challenge that we face, and we should address it, and we should do so in a bipartisan way.

Conrad: Let me just follow up and ask you this question. When you say no preconditions, does that mean that you can foresee a resolution that includes both additional revenue as well as reduction in expenses for the long-term entitlements? I am asking, though, when your side says, "There are no preconditions," because you say this, Secretary Paulson says it, but then I see the President and the Vice President, when they are interviewed publicly, slam the door in terms of revenue.

Portman: Absolutely, there is a serious chance, but...

Conrad: So is revenue on the table? If there is a discussion, if we come together for a negotiation, is revenue on the table as far as the administration is concerned?

Portman: I don't know how I can be more clear.... we believe that we do not need additional revenues to get to balance in 2012.

Conrad: Director Portman, you are doing exactly what I feared......what I am hearing from you is exactly what I hear publicly from the President and Vice President — that this is only going to be done on the cost cutting side, which clearly has to be done, but nothing on the revenue side. If that is what you postulate, then there will not be a conclusion because then you are only asking one side fundamentally to compromise. If both sides aren't prepared to compromise, there will not be resolution during this administration, and that would be a tragedy.

Closing Comment from Chairman Conrad: We have an opportunity here to work together, but the only way I know in human relations for there to be resolution between parties who have different views is for both sides to compromise. And, unfortunately I see virtually none on your side. And I regret that more than I can say.

A note on a budget meme that needs to be done in.

The Washington Post:

Some of its approaches, particularly the effort to restrain the growth of Medicare through additional means-testing and cutting payments to providers, are commendable; they merit more serious consideration by Congress than they appear destined to receive.

The New York Times:

Sharp reductions are envisioned for Medicare, with cuts of $66 billion over five years, and Medicaid, down approximately $11 billion. Some of the Medicare proposals could serve as useful starting points for a debate on controlling costs through such steps as raising premiums for high-income beneficiaries.

Ok, let's consider this "means-testing" idea, whatever they mean. What does means-testing have to do with the primary cause of Medicare and Medicaid cost concerns? Nada, zilch, zippo. High prices are mostly making public and private health care so expensive in this country, and we have high prices because we don't have universal-ish health care insurance.

Means-testing programs would merely shift costs and only make the overall problem worse. It gives Medicare recipients an extra incentive to buy insurance on the private market and leave the public risk pool when they can. In fact, isn't that the reason why the NYT and so many others opposed -rightly- the Bush health care tax initiative? At least the WaPo is consistent in being wrong.

This is public policy 101 people. You don't need me to tell you to identify the cause of the problem first, and design the policy solution to address the cause. Leave the nice rich people alone and focus on the real problem.

OMB Watch has released a preliminary analysis of the President's FY 08 Budget request.

President's Budget Full of Cheap Rhetoric; Wrong Priorities
President Favors Tax Cuts for the Wealthy over Domestic Needs

Check back here for additional analyses and commentary on the budget as the week progresses.